ITUS Corporation (NASDAQ: ITUS) – Cancer, you might have nowhere to hide?

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(NASDAQ: ITUS) – This company is actively involved in the acquisition and development of patents. They buy patents and monetize them for profit. Incorporated in 1982 and became a public company in 1983, the company is now headquartered in Mellville, NY. The company is currently developing a platform named Cchek™, which according to the company is “a series of inexpensive non-invasive blood tests for the early detection of cancer.”



Company Description


ITUS Corp was incorporated in 1982 and is headquartered in Mellville, New York. ITUS Corporation was originally known as CopyTele Inc. before the name change in 2014. It is essentially a company that internally develops, acquires and licenses patent/technology in biotech. The company owns a subsidiary named Anixa Diagnostics Corporate (“Anixa”), which is currently developing the Cchek™. This technology involves a series of blood tests for early detection of cancers. Anixa has an existing research agreement with The Wistar Institute – the institute will assist in the development and validation of Cchek™.


To date, ITUS Corp has demonstrated the Cchek™ platform for the early detection of lung cancer, colon cancer, melanoma, ovarian cancer, liver cancer, pancreatic among others, and in its December 2016 report, the Company announced that it achieved 92% in sensitivity and specificity in preliminary results of its efficacy study. Since then, the Company has continued to improve and upgrade its protocols, and enhance the software for more effective results.


Earlier this month, the Company announced a partnership with Delaware Valley Urology (“DVU”) – DVU is focuses on advanced diagnosis and treatment of several urological conditions including kidney, prostrate and bladder cancer.



Management & Governance


The Company has strong corporate governance, with three independent directors and two non-independent directors. The management team also has ample expertise and experience to steer the company in the right direction. In October 2016, ITUS announced Michael Catelani joined the company as the new Chief Financial Officer replacing Henry Hems who was with the company for 21 years, indicating ITUS has good succession plan in place.





Industry Overview & Competitive Positioning


The biotech industry is extremely volatile because of the nature of significant scientific expenditure and operations that are required to develop a product from initial stage to market. The industry emerged in the early 1970s and the primary purpose is to improve and enhance the quality of human life. The players range from traditional drug manufactures to medical endeavours for via creation and combination of DNA, to discovery of treatments and therapies for diabetes, cancer and other range of diseases.


ITUS is focused on developing a technology early detection of cancer which can then be treated before the diseases reaches advanced stages.



Investment Risks

In addition to general market risks, the following are specific risks that bio tech companies like ITUS face:


  1. Financing Risk: Most biotech companies currently lose money. ITUS had 2016 net loss of 5.02m (compared with $1.38m in 2015). In general, it takes several years, possibly decades to fully develop biotech products and during the development/clinical stages, it is not uncommon for such companies to have a high cash burn rate.


  1. Obsolescence Risk: The industry is rapidly developing and changing. In the event that a new technology is developed by another firm during the development stage of Cchek™, the effect would be negative on ITUS and might hamper its ability to generate significant profits to cover R&D costs for Cchek™.


  1. Binary Risk: This is unique to biotech companies because traditional fundamental analysis is almost irrelevant. “Binary” because one can only value the prospect of the company based on the results from its efficacy studies – having one of two outcomes: either positive or negative. More positive releases on its studies will be favourable for ITUS.



Earnings Review


ITUS revenue for FY 2016 was $300,000, a 17% year on year growth and because Cchek™ is still in its development stage, revenue is expected to remain at stable levels until commercial viability. The company.


Net loss over the past five years has been volatile and similarly, net cash flow from operations has continued to remain negative. The Company has however been conscious to reduce its long-term debt from $5m five years ago to $4.2m while also reducing its other liabilities, and hence reducing its interest expense.


As the Company continues to release updates regarding the efficacy of Cchek™, the stock price will move in the direction of favourability of the release. In addition, as the company continues to form more strategic partnerships and alliances like the inclusion of Abramson Cancer Center Researchers, which was announced on March 20, 2017 the stock will respond positively.



Stock Performance



Source: Bloomberg L.P


As of close of business on March 27, 2017, ITUS shares closed at $3.01 from its previous day close of $2.43; rising by 24.06% to XX with an average volume of 51,493 traded. The current market capitalization is $26.4m. On Friday March 25, 2017, the stock dipped to a 52-week low of $2.43, and for investors with high risk appetite and long term horizon, this presented an opportunity to acquire the stock cheap.





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